ex10_1.htm


    
      

    

    Exhibit
10.1

     

    SUBSCRIPTION
AGREEMENT

    


    This
Subscription Agreement (this “Agreement”) is entered into as
of July 24, 2008 by and among ReGen Biologics, Inc., a Delaware corporation
(together with its successors and permitted assigns, the “Issuer”), and the undersigned
investors (together with their successors and permitted assigns, the “Investors” and each an “Investor”).  Capitalized
terms used but not otherwise defined herein shall have the meanings set forth in
Section
11.1.

    


    RECITALS

    


    Subject
to the terms and conditions of this Agreement the Issuer desires to issue and
sell to the Investors, for an aggregate purchase price not less than $2,000,000
but not more than $3,000,000, an aggregate principal amount not less than
$2,000,000 but not more than $3,000,000 of the Issuer’s Unsecured Convertible
Notes substantially in the form attached hereto as Exhibit A (the “Notes”) and warrants to
purchase the Issuer’s Series F Preferred Stock, par value $0.01 per share
(“Series F Stock”) or
the Issuer’s Common Stock, par value $0.01 per share (“Common Stock”) pursuant to the
terms of the warrant substantially in the form attached hereto as Exhibit B (the “Warrant”) and each Investor,
severally and not jointly, desires to subscribe for and purchase the principal
amount of Notes set forth on such Investor’s signature page hereto.

    


    TERMS
OF AGREEMENT

    


    In
consideration of the mutual representations and warranties, covenants and
agreements contained herein, the parties hereto agree as follows:

    


    1.         
   SUBSCRIPTION
AND ISSUANCE OF NOTES.

    


    1.1      
     Subscription and Issuance of
the Notes.  At Closing, upon the terms and subject to the
conditions set forth herein: (a) the Issuer agrees that it will issue to the
Investors Notes up to the aggregate principal amount not less than $2,000,000
but not more than $3,000,000 for an aggregate purchase price (the “Aggregate Purchase Price”) of
not less than $2,000,000 but not more than $3,000,000 (the “Offering”), and each Investor,
severally and not jointly, agrees that it will acquire from the Issuer Notes in
the amount set forth on its signature page hereto; (b) the Issuer agrees that it
will issue to each Investor, and each Investor severally and not jointly agrees
that it will acquire from the Issuer, Notes, in each case, up to the aggregate
principal amount set forth on the signature page for each Investor hereof (the
“Investment Amount”);
and (c) each Investor agrees to remit payment for its Investment Amount in
accordance with the provisions of Section 1.3.

    


    1.2       
    Interest.  Interest
(“Interest”) at the rate
of 8.00% per annum shall be payable on the Maturity Date in arrears on the sum
of the principal amount of each Note then outstanding.  Interest on
the principal amount outstanding shall accrue daily and shall commence accruing
from the date of Closing and shall be computed on the basis of a 360-day year of
twelve (12) 30-day months.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    1.3           Payment for the
Notes.  At Closing, upon the terms and subject to the
conditions set forth herein, each Investor shall pay its respective Investment
Amount.  All payments by Investors shall be paid in cash, by wire
transfer of immediately available funds at Closing to an account designated in a
written notice delivered by the Company to each Investor not later than two (2)
days prior to the Closing.

    


    1.4        
   Repayment.  All
outstanding principal and accrued interest with respect to a Note shall be due
and payable in cash on the twelve (12) month anniversary of the date of Closing
(the “Maturity Date”),
unless such Note has been converted pursuant to Section 3.1
hereof.

    


    1.5         
  Legend.  Any
certificate or certificates representing the Notes or any shares of Series F
Stock or Common Stock issuable upon conversion of any Note shall bear the
following legend, in addition to any legend that may be required by any
Requirements of Law:

    


    THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH
RESPECT THERETO OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND ALSO MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH ANY APPLICABLE RULES OF THE SECURITIES AND EXCHANGE
COMMISSION.

    


    2.          
  CLOSING.

    


    2.1        
   Closing.  The
closing of the transactions contemplated herein (the “Closing”) shall take place on
a date designated by the Issuer, which date shall be on or around July 24,
2008.  The Closing shall take place at the offices of Pillsbury
Winthrop Shaw Pittman LLP, counsel for the Issuer, 1650 Tysons Boulevard,
McLean, VA 22102.  At the Closing (i) each Investor shall remit
payment in accordance with and in the manner specified
in Section 1.3, (ii) the
Issuer shall issue to the Investors the Notes representing an amount equal to
each Investor’s Investment Amount, (iii) the Issuer shall issue to each Investor
a Warrant or Warrants to purchase a number of shares of Series F Stock or, if
the Series F Stock has been converted into Common Stock, a number of shares of
Common Stock equal to 25% of the amount of such Investor’s Investment Amount
divided by
$15.00 and $0.15, respectively and (iv) all other actions referred to in this
Agreement which are required to be taken for the Closing shall be taken and all
other agreements and other documents referred to in this Agreement which are
required for the Closing shall be executed and delivered.

    


    2.2      
     Termination.  This
Agreement may be terminated at any time prior to the Closing:

    


    (a)       
    by mutual written consent of the Issuer and the
Investors;


    
      
         


      

      
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    (b)         
  with respect to any Investor’s obligations hereunder, by such
Investor, upon a materially inaccurate representation or breach of any material
warranty, covenant or agreement on the part of the Issuer set forth in this
Agreement, in either case such that the conditions in Section 10.1 would be
reasonably incapable of being satisfied on or prior to the date of the Closing;
or

    


    (c)       
    by the Issuer, upon a materially inaccurate
representation or breach of any material warranty, covenant or agreement on the
part of the Investors set forth in this Agreement, in either case such that the
conditions in Section
10.2 would be reasonably incapable of being satisfied on or prior to the
date of the Closing.

    


    2.3         
  Effect of
Termination.  In the event of termination of this Agreement
pursuant to Section 2.2,
this Agreement shall forthwith become void, there shall be no liability on the
part of the Issuer or the Investors to each other and all rights and obligations
of any party hereto shall cease; provided, however, that nothing
herein shall relieve any party from liability for the willful breach of any of
its representations and warranties, covenants or agreements set forth in this
Agreement.

    


    3.          
   CONVERSION
TERMS.

    


    3.1        
   Optional
Conversion.  On or after the date of Closing, the Holder of a
Note shall, at its sole election be entitled to convert the outstanding
principal amount together with accrued and unpaid interest of such Note (the
“Note Amount”) into
fully paid and nonassessable shares of Series F Stock or, if a “Conversion Event” (as defined
in the Certificate of Designations, Preferences and Rights in the form attached
hereto as Exhibit
C (the “Certificate of
Designations”)) has occurred, into fully paid and nonassessable shares of
Common Stock in accordance with this Section 3.  The
Issuer shall not issue any fractional shares of Series F Stock or Common Stock
upon any conversion.  Instead, the Issuer shall pay to such Investor
cash in lieu of fractional shares based on the per share price of $15.00 for
Series F Stock or the per share price of $0.15 for Common Stock.

    


    3.2        
   Conversion
Rate.  The number of shares of Series F Stock issuable upon
conversion of the Note Amount shall be determined by dividing (a) such Note
Amount by (b)
$15.00.  If, prior to conversion, a Conversion Event has occurred,
then the number of shares of Common Stock issuable upon conversion of the Note
Amount shall be determined by dividing (x) such Note Amount by (y) $0.15 (the
“Common Conversion
Price”), subject to adjustment as described in Section 3.3
below.

    


    3.3        
   Adjustment to Conversion
Rate.

    


    (a)      
     In case the Issuer shall at any time after the
Closing declare a dividend or make a distribution on Common Stock, subdivide or
split the outstanding Common Stock, combine or reclassify the outstanding Common
Stock into a smaller number of shares or consolidate with, or merge with or
into, any other entity, or engage in any reorganization, reclassification or
recapitalization that is effected in such a manner that the holders of Common
Stock are entitled to receive stock, securities, cash or other assets with
respect to or in exchange for Common Stock, then the kind and amount of stock,
securities, cash or other assets issuable upon conversion of the Note in effect
at the time of the record date for such dividend or distribution or of the
effective date of such subdivision, split, combination, consolidation, merger,
reorganization, reclassification or recapitalization shall be adjusted so that
the conversion of the Note after such time shall entitle the holder to receive
the aggregate number of shares of Common Stock or securities, cash and other
assets that, if the Note had been converted immediately prior to such time, such
holder would have owned upon such conversion and been entitled to receive by
virtue of such dividend, distribution, subdivision, split, combination,
consolidation, merger, reorganization, reclassification or
recapitalization.  Such adjustment shall be made successively whenever
any event listed above shall occur.


    
      
         


      

      
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    (i)          
  All calculations under this subsection (a) shall be made to the
nearest four decimal points.

    


    (ii)        
   In the event that, at any time as a result of the provisions
of this subsection (a), the holder of the Note upon subsequent conversion shall
become entitled to receive any securities other than Common Stock, the number
and kind of such other securities so receivable upon conversion of the Note
shall thereafter be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions contained
herein.

    


    (b)        
   In the event the Issuer shall at any time after the Closing
issue Additional Shares of Common Stock (as defined below) without consideration
or for consideration per share less than $0.12 per share, as adjusted in
accordance with subsection (a) above (a “Dilutive Issuance”), then the
Common Conversion Price shall be reduced, concurrently with such Dilutive
Issuance, to the consideration per share received or deemed received by the
Issuer for such issued or deemed issue of the Additional Shares of Common Stock,
with such consideration per share to be calculated by dividing the total amount
of consideration received or deemed received by the Issuer for such Dilutive
Issuance by the
total number of Additional Shares of Common Stock issued or deemed issued as
part of such Dilutive Issuance; provided that, if
such Dilutive Issuance was without consideration, then the Issuer shall be
deemed to have received an aggregate of $0.01 of consideration for all such
Additional Shares of Common Stock issued or deemed to be issued.  For
clarity, any Additional Shares of Common Stock issued or deemed to be issued
pursuant to the same agreement or transaction shall be considered one Dilutive
Issuance.

    


    (c)        
   For purposes of this Section 3.3, “Additional
Shares of Common Stock” shall mean all shares of Common Stock issued by the
Issuer or deemed to be issued pursuant to subsection (d) of this Section 3.3, excluding those
shares described in subsection (e) of this Section 3.3.

    


    (d)       
    In the case of Common Stock deemed to be issued, which
shall include the issuance of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall
apply:


    
      
         


      

      
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    (i)          
  The aggregate maximum number of shares of Common Stock deliverable
upon exercise (assuming the satisfaction of any conditions to exercisability,
including without limitation, the passage of time, but without taking into
account potential anti-dilution adjustments) of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal to the
consideration, if any, received by the Issuer upon the issuance of such options
or rights plus the minimum exercise price provided in such options or rights
(without taking into account potential anti-dilution adjustments) for the Common
Stock covered thereby.

    


    (ii)      
     The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without limitation, the passage of
time, but without taking into account potential anti-dilution adjustments) or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Issuer for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Issuer (without taking into account potential
anti-dilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights.

    


    (iii)           In
the event of any change in the number of shares of Common Stock deliverable or
in the consideration payable to the Issuer upon exercise of such options or
rights or upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Common Conversion Price of the Notes, to
the extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.

    


    (iv)           Upon
the expiration of any such options or rights, the termination of any such rights
to convert or exchange or the expiration of any options or rights related to
such convertible or exchangeable securities, the Common Conversion Price of the
Notes to the extent in any way affected by or computed using such options,
rights or securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities which remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.


    
      
         


      

      
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    (v)         
  The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to clauses (i) and (ii) above shall
be appropriately adjusted to reflect any change, termination or expiration of
the type described in either clause (iii) or clause (iv) above.

    


    (e)        
   Notwithstanding the foregoing, no adjustment will be made
under this Section 3.3
in respect to any issuance of Common Stock (i) upon exercise or conversion of
any options or other securities described in the Issuer’s securities filings
with the SEC on file with the SEC prior to Closing or otherwise pursuant to any
employee benefit plan of the Issuer or its subsidiaries or hereafter adopted by
the Issuer, (ii) or convertible securities issued in a joint venture, strategic
partnership or licensing arrangement, the primary purpose of which is not the
raising of capital, (iii) issued in connection with this Agreement or (iv) which
results in an adjustment pursuant to subsection (a).

    


    4.           
  REPRESENTATIONS AND
WARRANTIES OF THE ISSUER.

    


     As
a material inducement to the Investors entering into this Agreement, subscribing
for the Notes, except as set forth in the Disclosure Schedules delivered to the
Investors concurrently herewith, the Issuer represents and warrants to the
Investors as follows:

    


    4.1        
   Corporate
Status.  The Issuer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
the Issuer and its Subsidiaries has full corporate power and authority to own
and hold its properties and to conduct its business as described in the Issuer’s
SEC Reports. Each of the Issuer and its Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business requires qualification or good standing, except for any failure to be
so qualified or be in good standing that would not have a Material Adverse
Effect.

    


    4.2        
   Corporate Power and
Authority.  The Issuer has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
to consummate the transactions contemplated hereby.  At or prior to
the Closing, the Issuer will have taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.  No further
approval or authorization of any stockholder or the board of directors of the
Issuer is required for the issuance and sale of the Notes or, except as provided
in Section 7.2, the
filing of the Registration Statement.

    


    4.3       
    Enforceability.  This
Agreement has been duly executed and delivered by the Issuer and (assuming it
has been duly authorized, executed and delivered by the Investors) constitutes a
legal, valid and binding obligation of the Issuer, enforceable against the
Issuer in accordance with its terms, except (a) as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors’ rights generally, and (b) the indemnity
provisions of Section 9
of this Agreement, to the extent such provisions may not be enforceable
based upon public policy considerations, and general equitable principles,
regardless of whether such enforceability is considered in a proceeding at law
or in equity.


    
      
         


      

      
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    4.4        
   No
Violation.  The execution and delivery by the Issuer of this
Agreement, the consummation of the transactions contemplated hereby, and the
compliance by the Issuer with the terms and provisions hereof (including,
without limitation, the Issuer’s issuance to the Investors of the Notes as
contemplated by and in accordance with this Agreement), will not result in a
default under (or give any other party the right, with the giving of notice or
the passage of time (or both), to declare a default or accelerate any obligation
under) or violate the Certificate of Incorporation or By-Laws of the Issuer or
any material Contract to which the Issuer is a party (except to the extent such
a default, acceleration, or violation would not, in the case of a Contract, have
a Material Adverse Effect on the Issuer), or materially violate any Requirement
of Law applicable to the Issuer, or result in the creation or imposition of any
material Lien upon any of the capital stock, properties or assets of the Issuer
or any of its Subsidiaries (except where such violations of any Requirement of
Law or creations or impositions of any Liens would not have a Material Adverse
Effect on the Issuer).  Neither the Issuer nor any of its Subsidiaries
is (a) in default under or in violation of any material Contract to which it is
a party or by which it or any of its properties is bound or (b) to its
knowledge, in violation of any order of any Governmental Authority, which, in
the case of clauses (a)
and (b), could
reasonably be expected to have a Material Adverse Effect.

    


    4.5        
   Consents/Approvals.  Except
for the filing of a registration statement in accordance with Article 7 hereof and filings
with the SEC and the securities commissions of the states in which the Notes are
to be issued, no consents, filings, authorizations or other actions of any
Governmental Authority are required to be obtained or made by the Issuer for the
Issuer’s execution, delivery and performance of this Agreement which have not
already been obtained or made.  No consent, approval, waiver or other
action by any Person under any Contract to which the Issuer is a party or by
which the Issuer or any of its properties or assets are bound is required or
necessary for the execution, delivery or performance by the Issuer of this
Agreement and the consummation of the transactions contemplated hereby, except
where the failure to obtain such consents would not have a Material Adverse
Effect on the Issuer.

    


    4.6       
    Valid
Issuance.  Upon payment of the Aggregate Purchase Price by the
Investors and delivery to the Investors of the Notes, the Notes will be validly
issued, fully paid and nonassessable and will be free and clear of all Liens
imposed by the Issuer.  The shares of Series F Stock or Common Stock
issuable upon conversion of the Notes (the “Conversion Shares”) (in
accordance with the Certificate of Designations, Preferences and Rights relating
to the Conversion Shares, with respect to Series F Stock, in the form attached
hereto as Exhibit
C) when issued will be validly issued, fully paid and nonassessable and
will be free and clear of all Liens imposed by the Issuer and will not be
subject to any preemptive rights or other similar rights of stockholders of the
Issuer imposed by law.

    


    4.7         
  SEC
Filings and Other Filings.  Except as set forth on Schedule 4.7, the
Issuer has timely made all filings required to be made by it under the Exchange
Act since December 31, 2006.  The Issuer has delivered or made
accessible to the Investors true, accurate and complete copies of (a) the
Issuer’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007;
(b) the Issuer’s definitive proxy statement dated April 21, 2008 relating to its
2008 Annual Meeting of Stockholders; and (c) the Issuer’s Period Report on Form
10-Q dated May 8, 2008 for the quarter ended March 31, 2008 (as such documents have,
since the time of their filing, been amended or supplemented, and together with
all reports, documents and information filed or after the date first written
above through the date of Closing with the SEC, collectively the “SEC Reports”).  The
SEC Reports, when filed (unless amended and superseded by a later Issuer filing
prior to the date hereof, then on the date of such later filing), complied in
all material respects with all applicable requirements of the Exchange Act and
the Securities Act, if and to the extent applicable, and the rules and
regulations of the SEC thereunder applicable to the SEC Reports.  None
of the SEC Reports when filed (unless amended and superseded by a later Issuer
filing prior to the date hereof, then on the date of such later filing)
contained any misstatement of a material fact or omitted to state a material
fact necessary to prevent the statements made therein from being
misleading.


    
      
         


      

      
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    4.8        
   Commissions.  Except
for those fees set forth on Schedule 4.8, the
Issuer has not incurred any other obligation for any finder’s or broker’s or
agent’s fees or commissions in connection with the transactions contemplated
hereby.

    


    4.9        
   Capitalization.  As
of the date hereof, the authorized capital stock of the Issuer consists of
165,000,000 shares of Common Stock and 60,000,000 shares of Preferred
Stock.  Except as set forth on Schedule 4.9, all
issued and outstanding shares of capital stock of the Issuer have been, and as
of Closing will be, duly authorized and validly issued and are fully paid and
non-assessable, have been issued in compliance with all applicable state and
federal securities laws in all material respects and were not issued in
violation of, or subject to, any preemptive, subscription or other similar
rights of any stockholder of the Issuer imposed by law.  As of June
30, 2008, the Issuer has issued and outstanding 104,243,082 shares of Common
Stock and 9,209,679 shares of Preferred Stock, of which 2,483,116 shares have
been designated as Series A Convertible Preferred Stock, of which 6,583,348
shares have been designated as Series C Convertible Preferred Stock, of which
135,715 shares have been designated as Series D Convertible Preferred Stock and
of which 7,500 shares have been designated as Series E Convertible Preferred
Stock.  Except for outstanding options to purchase 37,245,599 shares
of Common Stock, outstanding options to purchase 135,715 shares of Series D
Convertible Preferred Stock, outstanding options to purchase 448,771 shares of
Series E Convertible Preferred Stock, outstanding warrants to purchase 9,835,248
shares of Common Stock, outstanding warrants to purchase 65,224 shares of Series
D Convertible Preferred Stock, and the right to convert the outstanding shares
of Preferred Stock into shares of Common Stock, as of June 30, 2008 there were
no outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal and similar rights) or agreements, orally or
in writing, for the purchase or acquisition from the Issuer of any shares of
capital stock, and, except as set forth on Schedule 4.9, the
Issuer is not a party to or subject to any agreement or understanding and, to
the Issuer’s knowledge, there is no agreement or understanding between any
Persons, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Issuer. The Issuer owns,
directly or indirectly, all of the capital stock of its Subsidiaries, free and
clear of any Liens or equitable interests other than as reflected in the SEC
Reports.  Except as set forth in the SEC Reports, the Issuer has no
obligation, contingent or otherwise, to redeem or repurchase any equity security
or any security that is a combination of debt and equity.


    
      
         


      

      
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    4.10          Material
Changes.  Except as set forth in the SEC Reports (excluding any
“risk factors” or “forward-looking statements” sections thereof) or as otherwise
contemplated herein, since December 31, 2007, there has been no Material Adverse
Effect in respect of the Issuer and its Subsidiaries taken as a
whole.  Except as set forth in the SEC Reports (excluding any “risk
factors” or “forward-looking statements” sections thereof), since December 31,
2007, there has not been: (i) any direct or indirect redemption, purchase or
other acquisition by the Issuer of any shares of the Common Stock; (ii) any
declaration, setting aside or payment of any dividend or other distribution by
the Issuer with respect to the Common Stock; (iii) any borrowings incurred or
any material liabilities (absolute, accrued or contingent) assumed, other than
current liabilities incurred in the ordinary course of business, liabilities
under Contracts entered into in the ordinary course of business, or liabilities
not required to be reflected on the Issuer’s financial statements pursuant to
GAAP or required to disclosed in the SEC Reports; (iv) any Lien or adverse claim
on any of the Issuer’s material properties or assets, except for Liens for taxes
not yet due and payable or otherwise in the ordinary course of business; (v) any
sale, assignment or transfer of any of the Issuer’s material assets, tangible or
intangible, except in the ordinary course of business; (vi) any extraordinary
losses or waiver of any rights of material value; (vii) any material capital
expenditures or commitments therefor other than in the ordinary course of
business; (viii) any other material transaction other than in the ordinary
course of business; (ix) any material change in the nature or operations of the
business of the Issuer and its Subsidiaries; (x) any default in the payment of
principal or interest in any material amount, or violation of any material
covenant, with respect to any outstanding debt obligations that are material to
the Issuer and its Subsidiaries as a whole; (xi) any material changes to the
Issuer’s critical accounting policies or material deviations from historical
accounting and other practices in connection with the maintenance of the
Issuer’s books and records; or (xii) any agreement or commitment to do any of
the foregoing.

    


    4.11          Litigation.  Except
as set forth in the SEC Reports, there is no action, suit, proceeding or
investigation pending or, to the Issuer’s knowledge, currently threatened
against the Issuer or any of its Subsidiaries that questions the validity of
this Agreement or the right of the Issuer to enter into it, or to consummate the
transactions contemplated hereby, or that could reasonably be expected to
result, either individually or in the aggregate, in a Material Adverse Effect on
the Issuer or any material change in the current equity ownership of the Issuer.
The foregoing includes, without limitation, actions pending or, to the Issuer’s
knowledge, threatened involving the prior employment of any of the Issuer’s
employees or their use in connection with the Issuer’s business of any
information or techniques allegedly proprietary to any of their former
employers.  Neither the Issuer nor any of its Subsidiaries is a party
to or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or Governmental Authority.  There is no action,
suit, proceeding or investigation by the Issuer or any of its Subsidiaries
currently pending or which the Issuer or any of its Subsidiaries currently
intends to initiate, which could reasonably be expected to have a Material
Adverse Effect.


    
      
         


      

      
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    4.12          Rights of Registration,
Voting Rights, and Anti-Dilution.  Except as contemplated in
this Agreement and as set forth on Schedule 4.12, the
Issuer has not granted or agreed to grant any registration rights, including
piggyback rights, to any Person and, to the Issuer’s knowledge, no stockholder
of the Issuer has entered into any agreements with respect to the voting of
capital shares of the Issuer.  Except as set forth in Schedule 4.12, the
issuance of the Notes does not constitute an anti-dilution event for any
existing security holders of the Issuer, pursuant to which such security holders
would be entitled to additional securities or a reduction in the applicable
conversion price or exercise price of any securities.

    


    4.13          Offerings.  Subject
in part to the truth and accuracy of the Investors’ representations and
warranties set forth in this Agreement, the offer, sale and issuance of the
Notes, Warrants and Conversion Shares (together, the “Securities”) as contemplated
by this Agreement are exempt from the registration requirements of the
Securities Act and any applicable state securities laws, and neither the Issuer
nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.

    


    4.14          Licenses and
Permits.  Except as disclosed in the SEC Reports or on Schedule 4.14, each
of the Issuer and its Subsidiaries has all Permits under applicable Requirements
of Law from all applicable Governmental Authorities that are necessary to
operate its businesses as presently conducted and all such Permits are in full
force and effect, except where the failure to have any such Permits in full
force and effect would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.  Neither the Issuer nor
any of its Subsidiaries is in default under, or in violation of or noncompliance
with, any of such Permits, except for any such default, violation, or
noncompliance which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. To the Issuer’s knowledge, other
than as disclosed in the SEC Reports, there is no proposed change in any
Requirements of Law which would require the Issuer and its Subsidiaries to
obtain any Permits in order to conduct its business as presently conducted that
the Issuer and its Subsidiaries do not currently possess and the lack of which
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

    


    4.15          Patents and
Trademarks.  The Issuer and each of its Subsidiaries has, or
has rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and know-how
(including trade secrets or other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) (collectively, the “Intellectual Property Rights”)
that are necessary for use in connection with its business as presently
conducted, except where the failure to have such Intellectual Property Rights
would not reasonably be expected to have a Material Adverse
Effect.  To the Issuer’s knowledge, there is no existing infringement
by another person or entity of any of the Intellectual Property Rights that are
necessary for use in connection with the Issuer’s business as presently
conducted.  The Issuer is not infringing on any intellectual property
rights of any other person, nor is there any claim of infringement made or, to
the Issuer’s knowledge, threatened by a third party against or involving the
Issuer.


    
      
         


      

      
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    4.16          Insurance. The Issuer maintains and
will continue to maintain insurance with such insurers, and insuring against
such losses, in such amounts, and subject to such deductibles and exclusions as
are customary in the Issuer’s industry and otherwise reasonably prudent, all of
which insurance is in full force and effect.

    


    4.17          Material Contracts.
All material Contracts to which the Issuer or any Subsidiary is a party and
which are required to have been filed by the Issuer on Exhibit 10 to the SEC
Reports have been filed by the Issuer with the SEC pursuant to the requirements
of the Exchange Act.  Except as disclosed in the SEC Reports, each
such material Contract is in full force and effect, except as otherwise required
pursuant to its respective terms, and is binding on the Issuer or its
Subsidiaries, as the case may be, in each case, in accordance with its
respective terms, and neither the Issuer or any of its Subsidiaries nor, to the
Issuer’s knowledge, any other party thereto is in breach of, or in default
under, any such material Contract, which breach or default would reasonably be
expected to have a Material Adverse Effect.  Except as set forth in
the SEC Reports, there exists no actual or, to the knowledge of the Issuer,
threatened termination, cancellation or limitation of, or any material adverse
modification or change in, the business relationship of the Issuer or any of its
Subsidiaries, or the business of the Issuer or any of its Subsidiaries, with any
customer or supplier or any group of customers or suppliers whose purchases or
inventories provided to the business of the Issuer or any of its Subsidiaries
would, individually or in the aggregate, have a Material Adverse
Effect.

    


    4.18          Taxes.  The
Issuer has filed all material federal, state and foreign income and franchise
tax returns which are due and has paid or accrued all taxes shown as due
thereon, and the Issuer has no knowledge of a tax deficiency which has been or
might be asserted or threatened against it which is reasonably likely to have a
Material Adverse Effect.

    


    4.19          Private
Placement.  Neither the Issuer nor any of its Subsidiaries or
Affiliates, nor any Person acting on its or their behalf, (i) has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities, (ii) has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Securities under the
Securities Act or (iii) has issued any shares of Common Stock or shares of any
series of preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which would be integrated with the sale of the Securities hereunder
for purposes of the Securities Act or of any applicable stockholder approval
provisions, nor will the Issuer or any of its Subsidiaries or Affiliates take
any action or steps that would require registration of any of the Securities
under the Securities Act or cause the offering of the Securities to be
integrated with other offerings.  Assuming the accuracy of the
representations and warranties of the Investors, the offer and sale of the
Securities by the Issuer to the Investors pursuant to this Agreement will be
exempt from the registration requirements of the Securities Act.

    


    4.20          Application of Takeover
Protections. There is no control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Issuer's charter documents or the laws
of its state of incorporation that is or could become applicable to the
Investors as a result of the Investors and the Issuer fulfilling their
obligations or exercising their rights hereunder, including, without limitation,
as a result of the Issuer's issuance of the Securities or the Investors’
ownership of the Securities.


    
      
         


      

      
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    5.        
     REPRESENTATIONS AND WARRANTIES OF
EACH INVESTOR.

    


    As a
material inducement to the Issuer entering into this Agreement and issuing the
Notes, and in reliance upon the representations and warranties of the Issuer in
Section 4 hereof, each of the Investors severally and not jointly represents,
warrants, and covenants to the Issuer as follows:

    


    5.1       
    Power and
Authority.  The Investor, if other than a natural person, is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or formation.  The Investor has
the corporate, partnership or other power (or capacity) and authority under
applicable law to execute and deliver this Agreement and consummate the
transactions contemplated hereby, and has all necessary authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby.  The Investor has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby.

    


    5.2        
   No
Violation.  The execution and delivery by the Investor of this
Agreement, the consummation of the transactions contemplated hereby, and the
compliance by the Investor with the terms and provisions hereof, will not result
in a default under (or give any other party the right, with the giving of notice
or the passage of time (or both), to declare a default or accelerate any
obligation under) or violate any charter or similar documents of the Investor,
if other than a natural person, or any Contract to which the Investor is a party
or by which it or its properties or assets are bound, or violate any Requirement
of Law applicable to the Investor, other than such violations or defaults which,
individually and in the aggregate, do not and will not have a Material Adverse
Effect on the Investor.  The Investor will comply with any Requirement
of Law applicable to it in connection with the Offering and any resale by the
Investor of any of the Securities.

    


    5.3        
   Consents/Approvals.  No
consents, filings, authorizations or actions of any Governmental Authority are
required for the Investor’s execution, delivery and performance of this
Agreement.  No consent, approval, waiver or other actions by any
Person under any Contract to which the Investor is a party or by which the
Investor or any of its properties or assets are bound is required or necessary
for the execution, delivery and performance by the Investor of this Agreement
and the consummation of the transactions contemplated hereby.

    


    5.4        
   Enforceability.  This
Agreement has been duly executed and delivered by the Investor and (assuming it
has been duly authorized, executed and delivered by the Issuer) constitutes a
legal, valid and binding obligation of the Investor, enforceable against the
Investor in accordance with its terms, except (a) as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditor’s rights generally, and (b)
the indemnity provisions of Section 9 of this Agreement,
to the extent they may not be enforceable based upon public policy
considerations, and general equitable principles, regardless of whether
enforceability is considered in a proceeding at law or in
equity.


    
      
         


      

      
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    5.5        
   Investment
Intent.  The Investor is acquiring the Notes hereunder for its
own account and with no present intention of distributing or selling any of the
Securities and further agrees not to transfer such Securities in violation of
the Securities Act or any applicable state securities law, and no one other than
the Investor has any beneficial interest in the Notes (except to the extent that
the Investor may have delegated voting authority to its investment advisor) or
the Conversion Shares.  The Investor agrees that it will not sell or
otherwise dispose of any of the Securities unless such sale or other disposition
has been registered under the Securities Act or, in the opinion of counsel
acceptable to the Issuer, is exempt from registration under the Securities Act
and has been registered or qualified or, in the opinion of such counsel
acceptable to the Issuer, is exempt from registration or qualification under
applicable state securities laws.  The Investor understands that the
offer and sale by the Issuer of the Notes being acquired by the Investor
hereunder has not been registered under the Securities Act by reason of their
contemplated issuance in transactions exempt from the registration and
prospectus delivery requirements of the Securities Act pursuant to Section 4(2)
thereof, and that the reliance of the Issuer on such exemption from registration
is predicated in part on these representations and warranties of the
Investor.  The Investor acknowledges that pursuant to Section 1.5 of this Agreement
a restrictive legend consistent with the foregoing has been or will be placed on
the certificates for the Securities.

    


    5.6        
   Accredited
Investor.  The Investor is an “accredited investor” as such
term is defined in Rule 501(a) of Regulation D under the Securities Act, and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment to be made by it
hereunder.

    


    5.7        
   Adequate
Information.  The Investor has received from the Issuer, and
has had the opportunity to review, such information which the Investor considers
necessary or appropriate to evaluate the risks and merits of an investment in
the Notes.  The Investor also acknowledges that the additional risk
factors set forth on Exhibit D and
contained in the SEC Reports have been delivered to the Investor and the
Investor has had the opportunity to review such risk factors.

    


    5.8       
    Opportunity to
Question.  The Investor has had the opportunity to question,
and has questioned, to the extent deemed necessary or appropriate,
representatives of the Issuer so as to receive answers and verify information
obtained in the Investor’s examination of the Issuer, including the information
that the Investor has received and reviewed as referenced in Section 5.7 hereof in relation
to its investment in the Notes.

    


    5.9      
     No Other
Representations.  No oral or written material representations
have been made to the Investor in connection with the Investor’s acquisition of
the Notes which were in any way inconsistent with the information reviewed by
the Investor.  The Investor acknowledges that in deciding whether to
enter into this Agreement and to purchase the Notes hereunder, it has not relied
on any representations or warranties of any type or description made by the
Issuer or any of its representatives with regard to the Issuer, any of its
Subsidiaries, any of their respective businesses or properties, or the prospects
of the investment contemplated herein, other than the representations and
warranties set forth in Section
4 hereof.


    
      
         


      

      
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    5.10          Knowledge and
Experience.  The Investor has such knowledge and experience in
financial, tax and business matters, including substantial experience in
evaluating and investing in common stock and other securities (including the
common stock and other securities of speculative companies), so as to enable the
Investor to utilize the information referred to in Section 5.7 hereof and any
other information made available by the Issuer to the Investor in order to
evaluate the merits and risks of an investment in the Notes and to make an
informed investment decision with respect thereto.

    


    5.11          Independent
Decision.  The Investor is not relying on the Issuer or on any
legal or other opinion in the materials reviewed by the Investor with respect to
the financial or tax considerations of the Investor relating to its investment
in the Notes.  The Investor has relied solely on the representations
and warranties, covenants and agreements of the Issuer in this Agreement
(including the exhibits and schedules hereto) and on its examination and
independent investigation in making its decision to acquire the
Notes.

    


    5.12          Commissions.  The
Investor has not incurred any obligation for any finder’s or broker’s or agent’s
fees or commissions in connection with the transactions contemplated
hereby.

    


    6.             
COVENANTS.

    


    6.1  
         Public
Announcements.  The Issuer shall file within four (4) business
days after the Closing a Current Report on Form 8-K with the SEC in respect of
the transactions contemplated by this Agreement.  Prior to the earlier
of the filing of such Current Report on Form 8-K or the fifth business day after
the Closing, each Investor agrees not to make any public announcement or issue
any press release or otherwise publicly disseminate any information about the
subject matter of this Agreement.  Except as provided herein, the
Issuer shall have the right to make such public announcements and shall control,
in its sole and absolute discretion, the timing, form and content of all press
releases or other public communications of any sort relating to the subject
matter of this Agreement, and the method of their release, or publication
thereof.  The Issuer may issue press releases relating to the
transactions contemplated by this Agreement, but shall not identify any Investor
in any such press release without the consent of such Investor, except as may be
required by any Requirement of Law or rule of any exchange on which the Issuer’s
securities are listed.  Notwithstanding the foregoing, each Investor
may make such filings with and public disclosures to any Governmental Authority
as are required, including but not limited to filings on Form 4 and Schedule
13D/G with the SEC.


    
      
         


      

      
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    6.2    
       Further
Assurances.  Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be reasonably necessary or appropriate to effectuate, carry out and
comply with all of the terms of this Agreement and the transactions contemplated
hereby.  Each of the Investors and the Issuer shall make on a prompt
and timely basis all governmental or regulatory notifications and filings
required to be made by it with or to any Governmental Authority in connection
with the consummation of the transactions contemplated hereby.  The
Issuer and the Investors each agree to cooperate with the other in the
preparation and filing of all forms, notifications, reports and information, if
any, required or reasonably deemed advisable pursuant to any Requirement of Law
in connection with the transactions contemplated by this Agreement and to use
their respective commercially reasonable efforts to agree jointly on a method to
overcome any objections by any Governmental Authority to any such
transactions.  Except as may be specifically required hereunder,
neither of the parties hereto nor their respective Affiliates shall be required
to agree to take any action that in the reasonable opinion of such party would
result in or produce a Material Adverse Effect on such party.

    


    6.3       
    Notification of Certain
Matters.  Prior to the Closing, each party hereto shall give
prompt notice to the other party of the occurrence, or non-occurrence, of any
event which would be likely to cause any representation and warranty herein to
be untrue or inaccurate, or any covenant, condition or agreement herein not to
be complied with or satisfied.

    


    6.4       
    Confidential Information;
Standstill.

    


    (a)        
   Except as contemplated by Sections 6.1 and 6.2 above, each of the
Investors agrees that no portion of the Confidential Information (as defined
below) shall be disclosed to third parties, except as may be required by law,
without the prior express written consent of the Issuer; provided, that an
Investor may share such information with such of its officers and professional
advisors as may need to know such information to assist such Investor in its
evaluation thereof on the condition that such parties agree to be bound by the
terms hereof.  “Confidential Information”
means the existence and terms of this Agreement, the transactions contemplated
hereby, and the disclosures and other information contained herein, excluding
any disclosures or other information that is publicly available.

    


    (b)       
    For a period of two (2) years from Closing, no Investor
will, without the prior written consent of the Issuer (i) propose to enter into
any acquisition of all or substantially all of the assets or stock of the Issuer
or a merger or other business combination transaction involving the Issuer, (ii)
seek to control the management, Board of Directors or policies of the Issuer, or
(iii) except as set forth on Schedule 6.4(b),
form, join or in any way participate in a “group” (within the meaning of Section
13(d)(3) of the Exchange Act) with respect to any securities of the Issuer in
connection with any of the foregoing

    


    6.5       
    Amendments of Notes or to
Rights, Preferences or Privileges of Preferred Stock.  So long
as the Notes are outstanding, the Issuer shall be allowed to alter or change the
terms of the Notes (including any applicable provisions of this Agreement
notwithstanding anything to the contrary provided in Section 11.6) upon first
obtaining consent of the Investors whose investment constitutes a majority of
the Aggregate Purchase Price or any such subsequent holder (“Majority Consent”), unless
such alteration or change shall be deemed by the Issuer in good faith to
adversely affect the Notes or the rights of any Holder in which case the Issuer
must first obtain consent of each Investor; provided, however, that any
alteration or change to make earlier the Maturity Date or the date of repayment
pursuant to Section 1.4
shall not under any circumstances be deemed to adversely affect the Notes or the
rights of any Holder and may be altered or changed with Majority Consent
notwithstanding anything to the contrary provided in Section 11.6.  With
respect to any amendments to the rights, preferences or privileges of the
holders of Series F Stock, such amendments shall be subject to any provisions
relating to amendments contained in the Certificate of
Designations.


    
      
         


      

      
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    7.         
    REGISTRATION
RIGHTS.

    


    The
Investors shall have the following registration rights with respect to the
Registrable Securities owned by it:

    


    7.1       
    Transfer of Registration
Rights.  An Investor may assign the registration rights with
respect to the Securities to any party or parties to which it may from time to
time transfer all of its Notes in accordance with Section 5.5 hereof; provided, that the
transferee agrees in writing with the Issuer to be bound by the applicable
provisions of this Agreement regarding such registration rights and
indemnification relating thereto.  Upon assignment of any registration
rights pursuant to this Section
7.1, the Investor shall deliver to the Issuer a notice of such assignment
which includes the identity and address of any assignee and such other
information reasonably requested by the Issuer in connection with effecting any
such registration (collectively, the Investor and each such subsequent holder is
referred to as a “Holder”).  The
Issuer shall maintain at one of its offices a register for the recordation of
the names and addresses of the Holders and principal amount of the Notes owing
to each Holder pursuant to the terms hereof from time to time (for the purposes
of this Section 7.1
only, the “Register”).  The Issuer and Holders may treat each person
whose name is recorded in the Register pursuant to the terms hereof as a Holder
hereunder for all purposes of this Agreement.

    


    7.2      
     Required
Registration.  Following the date the Series F Stock are
converted into Common Stock, upon request of the holders of a majority of the
shares of Common Stock received upon conversion of the Series F Stock, the
Issuer will file a registration statement on Form S-1 (or S-3 if conditions
change to allow the Issuer to use S-3) (the “Registration Statement”) for
the resale of the Common Stock underlying the Series F Stock purchased at
Closing. The Issuer agrees to use commercially reasonable efforts to file a
Registration Statement as soon as possible after such request; provided, however, that if the
Issuer is not eligible to use Form S-3 and if such request is made within one
hundred twenty (120) days before the date that the Issuer’s next regularly
scheduled Annual Report on Form 10-K is due, the Issuer shall not be required to
make such filing until the date that is sixty (60) days following the date the
Issuer files its next regularly scheduled Annual Report on Form
10-K.  The Issuer shall subsequently use commercially reasonable
efforts to cause the SEC to declare the Registration Statement effective as soon
as possible.  The Issuer shall thereafter maintain the effectiveness
of the Registration Statement until the earlier of (a) the date on which all the
Registrable Securities have been sold pursuant to the Registration Statement or
Rule 144 promulgated under the Securities Act (“Rule 144”), (b) such time as
the Issuer reasonably determines, based on an opinion of counsel, that all of
the Holders will be eligible to sell under Rule 144 all of the Securities then
owned by the Holders within the volume limitations imposed by paragraph (e) of
Rule 144 in the three month period immediately following the termination of the
effectiveness of the Registration Statement, and (c) the first anniversary of
the date the Registration Statement was declared effective by the
SEC.  The Registration Statement filed pursuant to this Section 7.2 may include other
securities of the Issuer that are held by Persons who, by virtue of agreements
with the Issuer, are entitled to similar registration rights.


    
      
         


      

      
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    7.3       
    Registration
Procedures.

    


    (a)     
      In case of the Registration Statement
effected by the Issuer subject to this Section 7, the Issuer shall
keep the Investors, on behalf of Holder, advised in writing as to the initiation
of such registration, and as to the completion thereof.  In addition,
subject to Section 7.2
above, the Issuer shall, to the extent applicable to the Registration
Statement:

    


    (i)          
  prepare and file with the SEC such amendments and supplements to the
Registration Statement as may be necessary to keep such registration
continuously effective and free from any material misstatement or omission
necessary to make the statements therein, in light of the circumstances, not
misleading, and comply with provisions of the Securities Act with respect to the
disposition of all securities covered thereby during the period referred to in
Section
7.2;

    


    (ii)        
   update, correct, amend and supplement the Registration
Statement as necessary;

    


    (iii)           notify
the Holders promptly when the Registration Statement is declared effective by
the SEC, and furnish such number of prospectuses, including preliminary
prospectuses, and other documents incident thereto as any Holder may reasonably
request from time to time;

    


    (iv)           use
its commercially reasonable efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions of
the United States where an exemption is not available and as any Holder may
reasonably request to enable it to consummate the disposition in such
jurisdiction of the Registrable Securities (provided that the Issuer will not be
required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this provision, or (B)
consent to general service of process in any such jurisdiction, or (C) subject
itself to taxation in any jurisdiction where it is not already subject to
taxation);

    


    (v)       
    notify each Holder at any time when a prospectus
relating to the Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in the Registration Statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading and, subject to Section 7.6, the Issuer will
prepare a supplement or amendment to such prospectus, so that, as thereafter
delivered to purchasers of such shares, such prospectus will not contain any
untrue statements of a material fact or omit to state any fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading;


    
      
         


      

      
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    (vi)           cause
all such Registrable Securities to be listed on each securities exchange on
which similar securities issued by the Issuer are then listed and obtain all
necessary approvals for trading thereon;

    


    (vii)          provide
a transfer agent and registrar for all such Registrable Securities not later
than the effective date of the Registration Statement;

    


    (viii)         upon
the sale of any Registrable Securities pursuant to the Registration Statement,
direct the transfer agent to remove all restrictive legends from all
certificates or other instruments evidencing the Registrable
Securities;

    


    (ix)      
     with a view to making available to the Holders the
benefits of certain rules and regulations of the SEC that at any time permit the
sale of the Registrable Securities to the public without registration, so long
as any Registrable Securities are outstanding, the Issuer shall use its
commercially reasonable efforts for a period of two years following the date of
Closing:

    


    (1)       
    to make and keep public information available, as those
terms are understood and defined in Rule 144(c) under the Securities
Act;

    


    (2)          
 to file with the SEC in a timely manner all reports and other documents
required of the Issuer under the Exchange Act; and

    


    (3)         
  to furnish to the Holders upon any reasonable request a written
statement by the Issuer as to its compliance with the public information
requirements of Rule 144(c) under the Securities Act; and

    


    (x)         
  to advise the Holder promptly after it has received notice or
obtained knowledge of the existence of any stop order by the SEC delaying or
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose, and to make every commercially
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible
time.

    


    (b)         
  Notwithstanding anything stated or implied to the contrary in Section 7.3(a) above, the
Issuer shall not be required to consent to any underwritten offering of the
Registrable Securities or to any specific underwriter participating in any
underwritten public offering of the Registrable Securities.


    
      
         


      

      
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    (c)       
    Each Holder agrees that upon receipt of any notice from
the Issuer of the happening of any event of the kind described in Section 7.3(a)(v), and subject
to Section 7.5, such
Holder will forthwith discontinue such Holder’s disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such Holder’s receipt of the copies of the supplemented or
amended prospectus contemplated by Section 7.3(a)(v) and, if so
directed by the Issuer, will deliver to the Issuer at the Issuer’s expense all
copies, other than permanent file copies, then in such Holder’s possession, of
the prospectus relating to such Registrable Securities current at the time of
receipt of such notice.

    


    (d)      
     Except as required by law, all expenses incurred
by the Issuer in complying with this Section 7, including but not
limited to, all registration, qualification and filing fees, printing expenses,
fees and disbursements of counsel and accountants for the Issuer, blue sky fees
and expenses (including fees and disbursements of counsel related to all blue
sky matters) incurred in connection with any registration, qualification or
compliance pursuant to this Section 7 shall be borne by
the Issuer.  All underwriting discounts and selling commissions
applicable to a sale incurred in connection with any registration of Registrable
Securities and the legal fees and other expenses of a Holder shall be borne by
such Holder.

    


    7.4          
 Further
Information.  If Registrable Securities owned by a Holder are
included in any registration, such Holder shall furnish the Issuer such
information regarding itself as the Issuer may reasonably request and as shall
be required in connection with any registration (or amendment or supplement
thereto), referred to in this Agreement, and Holder shall indemnify the Issuer
with respect thereto in accordance with Section 9
hereof.  Each Investor hereby represents and warrants to the Issuer
that, upon request and in connection with the filing of a Registration
Statement, it will accurately and completely provide the requested information
and answer the questions listed in Exhibit G of this
Agreement, and the Investor agrees and acknowledges that the Issuer may rely on
such information as being true and correct for purposes of preparing and filing
the Registration Statement at the time of filing thereof and at the time it is
declared effective, unless the Investor has notified the Issuer in writing to
the contrary prior to such time.

    


    7.5        
   Right of
Suspension.

    


    (a)        
   Notwithstanding any other provision of this Agreement or any
related agreement to the contrary, the Issuer shall have the right, at any time,
to suspend the effectiveness of the Registration Statement and offers and sales
of the Registrable Securities pursuant thereto whenever, in the good faith
judgment of the Issuer, (i) there exists a material development or a potential
material development with respect to or involving the Issuer that the Issuer
would be obligated to disclose in the prospectus used in connection with the
Registration Statement, which disclosure, in the good faith judgment of the
Issuer, after considering the advice of counsel, would be premature or otherwise
inadvisable at such time or (ii) the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances, not misleading, including without
limitation that period annually during which any Registration Statement would
require suspension pending the Issuer’s new fiscal year financial statements
(each, a “Suspension
Event”).  In the event that the Issuer shall determine to so
suspend the effectiveness of the Registration Statement and offers and sales of
the Registrable Securities pursuant thereto, the Issuer shall, in addition to
performing those acts required to be performed under the Securities Act and/or
the Exchange Act or deemed advisable by the Issuer, deliver to each Holder
written notice thereof, signed by the Chief Financial Officer or Chief Executive
Officer of the Issuer.  Upon receipt of such notice, the Holders shall
discontinue disposition of the Registrable Securities pursuant to the
Registration Statement and prospectus until such Holders (x) are advised in
writing by the Issuer that the use of the Registration Statement and prospectus
(and offers and sales thereunder) may be resumed, (y) have received copies of a
supplemental or amended prospectus, if applicable, and (z) have received copies
of any additional or supplemental filings which are incorporated or deemed to be
incorporated by reference into such prospectus.  The Issuer will
exercise commercially reasonable efforts to ensure that the use of the
Registration Statement and prospectus may be resumed as quickly as
practicable.


    
      
         


      

      
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    (b)       
    The Issuer’s right to suspend the effectiveness of the
Registration Statement and the offers and sales of the Registrable Securities
pursuant thereto, as described above in this Section 7.5(a), shall be for a
period of time (the “Suspension
Period”) beginning on the date of the occurrence of the Suspension Event
and expiring on the earlier to occur of (i) the date on which the Suspension
Event ceases, or (ii) ninety (90) days after the occurrence of the Suspension
Event; provided, however, that there
shall not be more than two Suspension Periods in any 12-month
period.  Notwithstanding the foregoing, the Issuer shall be able to
suspend the effectiveness of the Registration Statement and offers and sales of
the Registrable Securities for any time period as may reasonably be required in
order to update the Registration Statement to replace financial information
which is no longer current, as required by applicable securities
law.

    


    (c)     
      In addition, in connection with any
underwritten public offering of securities of the Issuer, if requested by the
Issuer or its managing underwriter, each Holder will enter into a lock-up
agreement pursuant to which such Holder will not, during the seven (7) days
prior to, and for a period no longer than one hundred eighty (180) days
following, the date of the prospectus (or if the offering is pursuant to a shelf
registration statement, the date of the pricing prospectus supplement) relating
to the offering, offer, sell or otherwise dispose of any securities of the
Issuer without the prior consent of the Issuer and the managing underwriter,
provided that the executive officers and directors of the Issuer enter into
lock-up agreements for a period at least as long and on the same
terms.

    


    7.6       
    Transfer of
Securities.  An Investor may
transfer all or any part of its Securities to any Person under common management
with the Investor and may distribute all or any part of the Conversion Shares to
its equity holders or partners; provided, that any
such transfer shall be effected in full compliance with all applicable federal
and state securities laws, including, but not limited to, the Securities Act and
the rules of the SEC promulgated thereunder.  The Issuer will effect
such transfer of restricted certificates and will promptly amend or supplement
the Prospectus forming a part of the Registration Statement to add the
transferee to the selling stockholders in the Registration Statement; provided that the
transferor and transferee shall be required to provide the Issuer with the
information requested of the Investor in this Agreement, information reasonably
necessary for the Issuer to determine that the transfer was effected in
accordance with all applicable federal and state securities laws, including, but
not limited to, the Securities Act and the rules of the SEC promulgated
thereunder, and all other information reasonably requested by the Issuer from
time to time in connection with any transfer, registration, qualification or
compliance referred to in Section 7.4.


    
      
         


      

      
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    8.         
    RIGHT
OF FIRST OFFER

    


    8.1          
 Subsequent
Offerings.  Each Investor who is at the relevant time period an
“accredited investor” (as defined in Rule 501(a) of Regulation D under the
Securities Act) (each, a “Qualified Investor”), shall
have a right of first offer to purchase its pro rata share of all Equity
Securities (as defined below) that the Issuer may, from time to time, propose to
sell and issue after the date of this Agreement in a Qualified Issuance (as
defined below), other than the Equity Securities excluded by Section 8.5
hereof.  Each Qualified Investor’s pro rata share is equal to
the product of (a) the ratio of (i) the number of shares of the Issuer’s Common
Stock (including all shares of Common Stock issued or issuable upon conversion
of the Preferred Stock or upon the exercise of any outstanding warrants or
options) which such Qualified Investor is deemed to be a holder immediately
prior to the Qualified Issuance to (ii) the total number of shares of the
Issuer’s outstanding Common Stock (including all shares of Common Stock issued
or issuable upon conversion of the Preferred Stock or upon the exercise of any
outstanding warrants or options) immediately prior to the Qualified Issuance
multiplied by
(b) the aggregate amount of Equity Securities, other than the Equity Securities
excluded by Section 8.5
hereof, to be issued to any Existing Shareholder(s) in such Qualified
Issuance.  The term “Equity Securities” shall mean
(i) any Common Stock, Preferred Stock or other security of the Issuer, (ii) any
security convertible, with or without consideration, into any Common Stock,
Preferred Stock or other security (including any option to purchase such a
convertible security), (iii) any security carrying any warrant or right to
subscribe to or purchase any Common Stock, Preferred Stock or other security or
(iv) any such warrant or right.

    


    8.2      
     Exercise of
Rights.  If the Issuer proposes to issue any Equity Securities
in a Qualified Issuance, it shall give each Qualified Investor written notice of
its intention in accordance with Section 11.3, describing the
Equity Securities, the price and the terms and conditions upon which the Issuer
proposes to issue the same.  Each Qualified Investor shall have thirty
(30) calendar days
from the giving of such notice to agree to purchase its pro rata share of the Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Issuer in accordance with Section 11.3 and stating
therein the quantity of Equity Securities to be
purchased.  Notwithstanding the foregoing, the Issuer shall not be
required to offer or sell such Equity Securities to any Qualified Investor who
would cause the Issuer to be in violation of applicable federal securities laws
by virtue of such offer or sale.


    
      
         


      

      
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    8.3      
     Termination of Rights of
First Offer.  With respect to each Investor, the rights of
first offer established by this Section 8 shall terminate upon
the earlier of the following to occur: (a) repayment of the Notes pursuant to
Section 1.4; (b)
conversion by the Investor of its Note into Common Stock; (c) Mandatory
Conversion if the Investor has previously converted its Note into Series F
Stock; or (d) a Qualified Issuance (as defined below); provided, however, that the
rights of first offer established by this Section 8 shall not be
triggered by the events described in Sections 8.3(a) and 8.3(b).  For
purposes of this Agreement, a “Qualified Issuance” shall mean
an issuance of Equity Securities by the Issuer (other than the Equity Securities
excluded by Section 8.5
hereof) in which the Issuer is receiving an aggregate amount of consideration of
at least $500,000 from any Existing Shareholder(s).

    


    8.4      
     Transfer of Rights of First
Offer.  The rights of first offer of each Qualified Investor
under this Section 8 may
be transferred to any party or parties to which it may from time to time
transfer all of its Notes in accordance with Section 5.5 hereof; provided, that the
transferee agrees in writing with the Issuer to be bound by the applicable
provisions of this Agreement.  Upon transfer of any rights of first
offer under this Section
8, the Investor shall deliver to the Issuer a notice of such transfer
which includes the identity and address of any transferee and such other
information reasonably requested by the Issuer.

    


    8.5      
     Excluded
Securities.  The rights of first offer established by this
Section 8 shall have no
application to any of the following Equity Securities:

    


    (a)        
   shares of Common Stock issued in connection with any stock
split, stock dividend, recapitalization or reorganization by the
Issuer;

    


    (b)      
     shares of Common Stock issued upon conversion of
the Preferred Stock;

    


    (c)      
     any Equity Securities issued by the Issuer
pursuant to this Agreement;

    


    (d)        
   any Equity Securities issued pursuant to an employee stock
option plan, stock purchase plan or similar benefit program or agreement, where
the primary purpose is not to raise additional equity capital for the
Issuer;

    


    (e)       
    shares of Common Stock or Preferred Stock issued upon
exercise of warrants or options, or upon the conversion of convertible
securities, outstanding as of the date of Closing; and

    


    (f)         
   any Equity Securities issued in connection with any equipment
leasing arrangement, licensing, marketing, distribution or other strategic
transactions.

    


    9.       
      INDEMNIFICATION.

    


    9.1        
   Indemnification by the
Issuer.  The Issuer will indemnify and hold harmless each
Holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of Section 7 hereof and any
underwriter (as defined in the Securities Act) for such Holder, and any person
who controls such Holder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act or such underwriter within the
meaning of the Securities Act, and any officer, director, investment adviser,
employee, agent, partner, member or affiliate of such Holder (each, a “Holder Indemnified Party”),
from and against, and will reimburse each such Holder Indemnified Party with
respect to, any and all claims, actions, demands, losses, damages, liabilities,
costs and reasonably incurred expenses to which such Holder or any such Holder
Indemnified Party may become subject under the Securities Act or otherwise,
insofar as such claims, actions, demands, losses, damages, liabilities, costs or
reasonably incurred expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any materially
inaccurate representation or breach of any material warranty, agreement or
covenant of the Issuer contained herein; provided, however, that the
Issuer will not be liable in any such case to the extent that any such claim,
action, demand, loss, damage, liability, cost or expense is caused by an untrue
statement or alleged untrue statement or omission or alleged omission (1) made
in conformity with information furnished by such Holder in writing specifically
for use in the preparation thereof, or (2) which was cured in an amendment or
supplement to the prospectus (or any amendment or supplement thereto) delivered
to the Holder on a timely basis to permit proper delivery thereof prior to the
date on which any Registrable Securities were transferred or
sold.


    
      
         


      

      
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    9.2       
    Indemnification by the
Holder.  Each Holder of Registrable Securities which are
included in a registration statement pursuant to the provisions of Section 7 hereof will
indemnify and hold harmless the Issuer, and any Person who controls the Issuer
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, and any officer, director, employee, agent, partner, member or
affiliate of the Issuer (each, an “Issuer Indemnified Party”)
from and against, and will reimburse the Issuer Indemnified Parties with respect
to, any and all losses, damages, liabilities, costs or reasonably incurred
expenses to which such Issuer Indemnified Parties may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or reasonably incurred expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or are
caused by the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made solely in reliance
upon and in conformity with written information furnished by such Holder
specifically for use in the preparation thereof; provided, however, that the
liability of any Holder pursuant to this Section 9.2 shall be limited
to an amount not to exceed the net proceeds received by such Holder from the
sale of Registrable Securities pursuant to the registration statement which
gives rise to such obligation to indemnify.


    
      
         


      

      
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    9.3     
      Procedures.  Promptly
after receipt by a party indemnified pursuant to the provisions of Section 9.1 or Section 9.2 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of Section 9.1 or Section 9.2, notify the
indemnifying party of the commencement thereof; but the omission to so notify
the indemnifying party will not relieve it from any liability which it may have
to an indemnified party otherwise than under this Section 9 and shall not
relieve the indemnifying party from liability under this Section 9, except to the
extent that such indemnifying party is materially prejudiced by such
omission.  In case such action is brought against any indemnified
party and such indemnified party notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party pursuant to
the provisions of Section
9.1 or Section
9.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof.  No
indemnifying party shall be liable to an indemnified party for any settlement of
any action or claim without the consent of the indemnifying party.  No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.

    


    10.        
   CONDITIONS TO
CLOSING.

    


    10.1          Conditions to the
Obligations of the Investors.  The obligation of an Investor to
proceed with the Closing is subject to the following conditions, any and all of
which may be waived by such Investor, in whole or in part, to the extent
permitted by applicable law:

    


    (a)        
   Representations and
Warranties.  Each of the representations and warranties of the
Issuer contained in this Agreement shall be true and correct in all material
respects as of the Closing as though made on and as of the Closing, except (i)
for changes specifically permitted by this Agreement, (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, and (iii) such failures to
be true and correct which would not, individually or in the aggregate, have a
Material Adverse Effect on the Issuer.  Unless the Investor receives
written notice to the contrary at the Closing, such Investor shall be entitled
to assume that the preceding is accurate in all respects at the
Closing.

    


    (b)      
     Agreement and
Covenants.  The Issuer shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the
Closing.  Unless the Investor receives written notice to the contrary
at the Closing, such Investor shall be entitled to assume that the preceding is
accurate in all respects at the Closing.


    
      
         


      

      
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    (c)         
  No
Order.  No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Closing or any transaction contemplated by this
Agreement.

    


    (d)       
    Opinion of Issuer’s
Counsel.  The Investor shall have received an opinion of
Issuer’s counsel, dated the date of Closing, in the form attached hereto as
Exhibit
E.

    


    (e)        
   Closing Certificate.
The Investor shall have received a certificate executed by the Chief Executive
Officer or Chief Financial Officer of the Issuer, dated as of the Closing, to
the effect that the conditions set forth in Sections 9.1(a) and (b) have been
fulfilled.

    


    10.2          Conditions to the
Obligations of the Issuer.  The obligation of the Issuer to
proceed with the Closing is subject to the following conditions, any and all of
which may be waived by the Issuer, in whole or in part and with respect to any
or all Investors, to the extent permitted by applicable law:

    


    (a)       
    Representations and
Warranties.  Each of the representations and warranties of the
Investors contained in this Agreement shall be true and correct as of the
Closing as though made on and as of the Closing, except (i) for changes
specifically permitted by this Agreement, and (ii) that those representations
and warranties which address matters only as of a particular date shall remain
true and correct as of such date.  Unless the Issuer receives written
notification to the contrary at the Closing, the Issuer shall be entitled to
assume that the preceding is accurate in all respects at the
Closing.

    


    (b)         
  Agreement
and Covenants.  The Investors shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Closing.  Unless the Issuer receives written notification to the
contrary at the Closing, the Issuer shall be entitled to assume that the
preceding is accurate in all respects at the Closing.

    


    (c)        
   No
Order.  No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Closing or any transaction contemplated by this
Agreement.

    


    11.       
    MISCELLANEOUS.

    


    11.1          Defined
Terms.  As used herein the following terms shall have the
following meanings:

    


    (a)        
   “Affiliate” has the meaning
ascribed to it in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act, as in effect on the date hereof.


    
      
         


      

      
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    (b)       
    “Aggregate Purchase Price” has
the meaning specified in Section 1.1 of this
Agreement.

    


    (c)        
   “Agreement” has the meaning
specified in the Preamble to this Agreement.

    


    (d)        
   “Bylaws” means the Bylaws of
the Issuer, as the same may be supplemented, amended, or restated from time to
time.

    


    (e)        
   “Certificate
of Designations” has the meaning specified in Section 3.1 of this
Agreement.

    


    (f)         
   “Certificate
of Incorporation” means the Issuer’s Certificate of Incorporation, as the
same may be supplemented, amended or restated from time to time.

    


    (g)       
    “Closing” has the meaning
specified in Section 2.1
of this Agreement.

    


    (h)        
   “Common
Conversion Price” has the meaning specified in Section 3.2 of this
Agreement.

    


    (i)       
     “Common Stock” has the meaning
specified in the Recitals of this Agreement.

    


    (j)        
    “Confidential Information” has
the meaning specified in Section 6.4 of this
Agreement.

    


    (k)       
    “Contract” means any indenture,
lease, sublease, loan agreement, mortgage, note, restriction, commitment,
obligation or other contract, agreement or instrument.

    


    (l)        
    “Conversion Event” has the
meaning specified in Section
3.1 of this Agreement.

    


    (m)           “Conversion Shares” has the
meaning specified in Section
4.6 of this Agreement.

    


    (n)       
    “Dilutive Issuance” has the
meaning specified in Section
3.3(b) of this Agreement.

    


    (o)      
     “Equity Securities” has the
meaning specified in Section
8.1 of this Agreement.

    


    (p)        
   “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

    


    (q)       
    “Existing Shareholder” means
any “beneficial owner” as defined under Rule 13d-3 of the Exchange Act and its
affiliates.


    
      
         


      

      
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    (r)        
    “GAAP” means generally accepted
accounting principles in effect in the United States of America.

    


    (s)       
    “Governmental Authority” means
any nation or government, any state or other political subdivision thereof, and
any entity or official exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.

    


    (t)         
   “Holder” has the meaning
specified in Section 7.1
of this Agreement.

    


    (u)       
    “Holder
Indemnified Party” has the meaning specified in Section 9.1 of this
Agreement.

    


    (v)       
    “Intellectual Property Rights”
has the meaning specified in Section 4.15 of this
Agreement.

    


    (w)           “Interest” has the meaning
specified in Section 1.2
of this Agreement.

    


    (x)        
    “Investment Amount” has the
meaning specified in Section
1.1 of this Agreement.

    


    (y)          
 “Investors” has
the meaning specified in the Preamble to this Agreement.

    


    (z)        
   “Issuer” has the meaning
specified in the Preamble to this Agreement.

    


    (aa)          “Issuer Indemnified Party” has
the meaning specified in Section 9.2 of this
Agreement.

    


    (bb)         “Lien” means any mortgage,
pledge, security interest, encumbrance, lien or charge of any kind (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, and the filing of or agreement to give any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in connection
with such mortgage, pledge, security interest, encumbrance, lien or
charge).

    


    (cc)          “Majority Consent” has the
meaning specified in Section
6.5 of this Agreement.

    


    (dd)         “Mandatory Conversion” means
the Conversion of the Preferred Stock pursuant to Paragraph 7(a) of the
Certificate of Designations, Preferences and Rights in the form attached hereto
as Exhibit
C.

    


    (ee)          “Material Adverse Effect” means
a material and adverse change in, or effect on, the financial condition,
properties, assets, liabilities, rights, obligations, operations or business, of
a Person and its Subsidiaries taken as a whole.


    
      
         


      

      
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    (ff)       
    “Maturity Date” has the meaning
specified in Section 1.4
of this Agreement.

    


    (gg)         “Notes” has the meaning
specified in the Recitals to this Agreement.

    


    (hh)         “Note Amount” has the meaning
specified in Section 3.1
of this Agreement.

    


    (ii)       
    “Offering” has the meaning
specified in Section 1.1
of this Agreement.

    


    (jj)        
   “Optional
Conversion” means the conversion described in Section 3.1 of this
Agreement.

    


    (kk)          “Permit” means any permit,
certificate, consent, approval, authorization, order, license, variance,
franchise or other similar indicia of authority issued or granted by any
Governmental Authority.

    


    (ll)        
   “Person” means an individual,
partnership, corporation, business trust, joint stock company, estate, trust,
unincorporated association, joint venture, Governmental Authority or other
entity, of whatever nature.

    


    (mm)        “Preferred Stock” means the
Series A Convertible Preferred Stock, the Series C Convertible Preferred Stock,
the Series D Convertible Preferred Stock, the Series E Convertible Preferred
Stock and the Series F Stock.

    


    (nn)         “Qualified Investor” has the
meaning specified in Section
8.1 of this Agreement.

    


    (oo)         “Qualified Issuance” has the
meaning specified in Section
8.3 of this Agreement.

    


    (pp)         “Register”, “registered” and “registration” refer to a
registration of the offering and sale or resale of Series F Stock or Common
Stock effected by preparing and filing a registration statement in compliance
with the Securities Act and the declaration or ordering of the effectiveness of
such registration statement.

    


    (qq)         “Registrable Securities” means
the Conversion Shares and any other shares of Series F Stock or Common Stock or
other securities issued in respect of the Notes by way of a stock dividend or
stock split or in connection with a combination or subdivision of the’ Common
Stock or by way of a recapitalization, merger or consolidation or reorganization
of the Issuer; provided, however, that as to
any particular securities, such securities will cease to be Registrable
Securities upon the earlier of (i) the sale of such securities pursuant to
registration or in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act under Section 4(1) thereof, (ii) the
date that such securities are permitted to be disposed pursuant to Rule 144
under the Securities Act, or (iii) the date on which all such securities cease
to be outstanding; and, as a result of the event or circumstance described in
either of the foregoing clauses (i) or (ii), all transfer restrictions and
restrictive legends with respect thereto are removed or removable in accordance
with this Agreement or such legends, as the case may be.


    
      
         


      

      
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    (rr)        
   “Registration
Statement” has the meaning specified in Section 7.2 of this
Agreement.

    


    (ss)          “Requirements of Law” means as
to any Person, the certificate of incorporation, by-laws or other organizational
or governing documents of such Person, and any domestic or foreign and federal,
state or local law, rule, regulation, statute or ordinance or determination of
any arbitrator or a court or other Governmental Authority, in each case
applicable to, or binding upon, such Person or any of its properties or to which
such Person or any of its property is subject.

    


    (tt)       
    “Rule
144” has the meaning specified in Section 7.2 of this
Agreement.

    


    (uu)         “SEC” means the Securities and
Exchange Commission.

    


    (vv)         “SEC Reports” has the meaning
specified in Section 4.7
of this Agreement.

    


    (ww)        “Securities” means the Notes
and the Conversion Shares.

    


    (xx)      
    “Securities Act” means the
Securities Act of 1933, as amended.

    


    (yy)          “Series F Stock” has the
meaning specified in the Recitals of this Agreement.

    


    (zz)           “Subsidiary” means as to any
Person, a corporation or limited partnership of which more than 50% of the
outstanding capital stock or partnership interests having full voting power is
at the time directly or indirectly owned or controlled by such
Person.

    


    (aaa)        “Suspension Event” has the
meaning specified in Section
7.5(a) of this Agreement.

    


    (bbb)       “Suspension Period” has the
meaning specified in Section
7.5(b) of this Agreement.

    


    (ccc)        “Warrant” has the meaning
specified in the Recitals to this Agreement.

    


    11.2          Other Definitional
Provisions.


    
      
         


      

      
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    (a)        
   All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise
requires.

    


    (b)        
   Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.

    


    (c)          
 All accounting terms shall have a meaning determined in accordance with
GAAP.

    


    (d)        
   The words “hereof,” “herein” and “hereunder,” and words of
similar import, when used in this Agreement shall refer to this Agreement as a
whole (including any exhibits and schedules hereto) and not to any particular
provision of this Agreement.

    


    11.3          Notices.  All
notices, requests, demands, claims, and other communications hereunder shall be
in writing and shall be delivered by certified or registered mail (first class
postage pre-paid), guaranteed overnight delivery, or facsimile transmission if
such transmission is confirmed by delivery by certified or registered mail
(first class postage pre-paid) or guaranteed overnight delivery, to the
following addresses and telecopy numbers (or to such other addresses or telecopy
numbers which such party shall subsequently designate in writing to the other
party):

    


    (a)       
    if to the Issuer to:

    


    ReGen
Biologics, Inc.

    411
Hackensack Avenue

    Hackensack,
NJ  07601

    Attention:
Brion D. Umidi

    Telecopy:
201.651.5141

    


    with a
copy to:

    


    Pillsbury
Winthrop Shaw Pittman LLP

    1650
Tysons Boulevard

    McLean,
VA 22102

    Attention:
David C. Main, Esq.

    Telecopy:
703.770.7901

    


    (b)       
    if to an Investor, to the address or telecopy number set
forth next to its name on the signature page hereto.

    


    Each such
notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered by hand,
by messenger or by courier, or if sent by facsimile, upon confirmation of
receipt.


    
      
         


      

      
        30

        
          

        

      

      
         


      

    


    11.4          Entire
Agreement.  This Agreement (including the exhibits and
schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contain the entire understanding of the parties in respect of its
subject matter and supersede all prior agreements and understandings between the
parties with respect to such subject matter.

    


    11.5          Expenses;
Taxes.  Except as otherwise provided in this Agreement, the
parties shall pay their own fees and expenses, including their own counsel fees,
incurred in connection with this Agreement or any transaction contemplated
hereby.  Any sales tax, stamp duty, deed transfer or other tax (except
taxes based on the income of an Investor) arising out of the issuance of the
Securities (but not with respect to subsequent transfers) by the Issuer to an
Investor and consummation of the transactions contemplated by this Agreement
shall be paid by the Issuer.

    


    11.6          Amendment;
Waiver.  Unless provided otherwise in this Agreement, this
Agreement may not be modified, amended, supplemented, canceled or discharged,
except by written instrument executed by all parties.  Unless provided
otherwise in this Agreement, no failure to exercise, and no delay in exercising,
any right, power or privilege under this Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude the exercise of any other right, power or
privilege.  No waiver of any breach of any provision shall be deemed
to be a waiver of any preceding or succeeding breach of the same or any other
provision, nor shall any waiver be implied from any course of dealing between
the parties.  No extension of time for performance of any obligations
or other acts hereunder or under any other agreement shall be deemed to be an
extension of the time for performance of any other obligations or any other
acts.  The rights and remedies of the parties under this Agreement are
in addition to all other rights and remedies, at law or equity, that they may
have against each other.

    


    11.7          Binding Effect;
Assignment.  The rights and obligations of this Agreement shall
bind and inure to the benefit of the parties and their respective successors and
legal assigns.  The rights and obligations of this Agreement may not
be assigned by any party without the prior written consent of the other
party.

    


    11.8          Counterparts; Facsimile
Signature.  This Agreement may be executed by facsimile
signature and in any number of counterparts, each of which shall be an original
but all of which together shall constitute one and the same
instrument.

    


    11.9          Headings.  The
headings contained in this Agreement are for convenience of reference only and
are not to be given any legal effect and shall not affect the meaning or
interpretation of this Agreement.

    


    11.10        Governing Law;
Interpretation.  This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of New
York applicable to contracts executed and to be wholly performed within such
State.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    11.11        Severability.  The
parties stipulate that the terms and provisions of this Agreement are fair and
reasonable as of the date of this Agreement.  However, if any
provision of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated.  If, moreover, any of those provisions shall for any
reason be determined by a court of competent jurisdiction to be unenforceable
because excessively broad or vague as to duration, activity or subject, it shall
be construed by limiting, reducing or defining it, so as to be
enforceable.


    [Signature
Pages Follow]

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the
parties hereto have caused this Subscription Agreement to be duly executed and
delivered as of the date set forth below.

    


    
      	
              NAME OF
      INVESTOR:

            	 
      	
              ADDRESS FOR NOTICES
      (Please Print):

            	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	
              SIGNATURE:

            	 
      	 
      	 
      	 
      


    

    
      	 
      	 
      	 
      	
              Attention:

            	 
      	 
      


    

    
      	
              By:

            	 
      	 
      	
              Telecopy:

            	 
      	 
      


    

    
      	 
      	
              Name:

            	 
      	
              Phone:

            	 
      	 
      


    

    
      	 
      	
              Title:

            	 
      	
              Email Address:

            	 
      	 
      


    

    
      	 
      	 
      	 
      	
              Tax Identification #:

            	 
      	 
      


    

    


    
      	
              Exact
      Name to appear on Note:

            	 	 
      	 
      


    

    


    
      	
              Investment
      Amount (in dollars):

            	 	 
      	 
      


    

     

     

    Signature Page - Subscription Agreement

     

    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    ACCEPTED
THIS 24TH DAY OF JULY, 2008 BY:

    


    


    


    REGEN
BIOLOGICS, INC.

    


    


    


    
      	
              By:

            	 
      	 
      
	 
      	
              Name:  Brion
      D. Umidi

            	 
      
	 
      	
              Title:  Senior
      Vice President and Chief Financial Officer

            	 
      


    

     

    Signature Page - Subscription Agreement

     

    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
A

    


    FORM
OF NOTE


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
B

    


    FORM
OF WARRANT


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
C

    


    FORM
OF CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
D

    


    RISK
FACTORS RELATED TO THE SALE

    


    


    SALES OR
THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
BECAUSE THE MARKET PRICES FOR BIOTECHNOLOGY AND MEDICAL DEVICE STOCKS ARE LIKELY
TO REMAIN VOLATILE, OUR STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN OTHER
COMPANIES BY SUCH FUTURE SALES.

    


    Sales of
substantial numbers of shares of our Common Stock in the public market, or the
perception that significant sales are likely, could adversely affect the market
price of our Common Stock.  Compliance with the registration rights
provisions of the Subscription Agreement could create the perception that all
the shares of Common Stock that may be issuable upon conversion of the Notes
subsequent to a Mandatory Conversion will soon be available for sale, and this
number of shares is greater than the average trading volume for our
shares.  No prediction can be made as to the effect, if any, that
market sales of such shares will have on the market price of our Common
Stock.  Sales of substantial amounts of such shares in the public
market could adversely affect the market price of our Common Stock.

    


    THE
CONVERSION RATE OF THE SHARES OF COMMON STOCK MAY NOT BEAR ANY RELATIONSHIP TO
OUR ASSETS, BOOK VALUE, EARNINGS HISTORY, OR OTHER ESTABLISHED
CRITERIA.  AS A RESULT, YOU MAY EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.

    


    The
Conversion Rate of the shares of the Series F Stock and Common Stock was
established based on such factors as our capital requirements, financial
conditions and prospects, percentage of ownership to be held by investors
following this sale, and the general condition of securities markets at the time
of the sale.  The Conversion Rate does not necessarily bear any
relationship to our assets, book value, earnings history or other established
criteria of value.  As a result, you may experience immediate and
substantial dilution.

    


    WE ARE
UNABLE TO DETERMINE WITH CERTAINTY WHEN THE REGISTRATION STATEMENT TO BE FILED
WITH THE SEC WILL BE DECLARED EFFECTIVE.  CONSEQUENTLY, YOU MAY NOT BE
ABLE TO SELL YOUR SHARES OF COMMON STOCK FOR A SUBSTANTIAL PERIOD OF
TIME.

    


    Although
we have undertaken to register the shares of Common Stock upon conversion of the
Notes subsequent a to a Mandatory Conversion for resale by you, you should be
aware that we are unable to determine with certainty when the registration
statement to be filed with the SEC will become effective.  The SEC may
seek to review our registration statement, in which case, the period necessary
to achieve effectiveness of the registration statement with the SEC will be
affected by our ability to provide the SEC with sufficient disclosures
satisfactory to the SEC.  The length of the SEC review process is
uncertain and may extend to a number of months.  As you are aware, the
shares of Common Stock that may issued upon conversion of the Notes that are
being sold in this sale are restricted in nature and may not be publicly resold
absent the effectiveness of the registration statement or pursuant to an
applicable exemption from registration. Consequently, you may not be able to
sell your shares of Common Stock for a substantial period of
time.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    WE MAY
ALLOCATE THE NET PROCEEDS OF THIS SALE IN WAYS WITH WHICH YOU MAY NOT
AGREE.

    


    We will
have broad discretion in how we apply the net proceeds from this
sale.  Because the net proceeds of this sale are not required to be
allocated to any specific investment or transaction, you cannot determine at
this time the value or appropriateness of our application of the net proceeds,
and you and other shareholders may not agree with our decisions.  For
example, we may attempt to acquire other businesses or assets using a portion of
the net proceeds of this sale which otherwise could have been used for working
capital.  There can be no assurance that we will be able to acquire
any desirable businesses or assets or that, if acquired, that we will be able to
successfully develop or integrate such businesses or assets.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
E

    


    FORM
OF OPINION


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    Exhibit
10.1

     

    EXHIBIT
F

    


    EXPLANATION
OF “BENEFICIAL OWNERSHIP”

    


    


    Securities
that are subject to a power to vote or dispose are deemed beneficially owned by
the person who holds such power, directly or indirectly.  This means
that the same securities may be deemed beneficially owned by more than one
person, if such power is shared.  In addition, the beneficial
ownership rules provide that shares which may be acquired upon exercise of an
option or warrant, or which may be acquired upon the termination of a trust,
discretionary account or similar arrangement, which can be effected within a
period of sixty (60) days from the date of determination, are deemed to be
“beneficially” owned.  Furthermore, shares that are subject to rights
or powers even though such rights or powers to acquire are not exercisable
within the 60-day period may also be deemed to be beneficially owned if the
rights or powers were acquired “with the purpose or effect of changing or
influencing the control of the issuer or in connection with or as a participant
in any transaction having such purpose or effect.”

    


    In
determining whether securities are “beneficially owned,” benefits which are
substantially equivalent to those of ownership by virtue of any contract,
understanding, relationship, agreement or other arrangement should cause the
securities to be listed as “beneficially owned.”

    


    Thus, for
example, securities held for a person’s benefit in the name of others or in the
name of any estate or trust in which such person may be interested should also
be listed.  Securities held by a person’s spouse, children or other
members of such person’s family who are such person’s dependents or who live in
such person’s household should be listed as “beneficially owned” unless such
person does not enjoy benefits equivalent to those of ownership with respect to
such securities.

    


    If a
person has a proprietary or beneficial interest in a controlled corporation,
partnership, personal holding company, trust or estate which owns of record or
beneficially any securities, such person should state the amount of such
securities owned by such controlled corporation, partnership, personal holding
company, trust or estate in lieu of allocating such person’s proprietary
interest, and by note or otherwise, please indicate that.  In any
case, the name of the controlled corporation, partnership, personal holding
company, or estate must be stated.

    


    In all
cases the nature of the beneficial ownership should be stated.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    Exhibit
10.1

     

    EXHIBIT
G

    


    ADDITIONAL
INFORMATION

    


    The
Investor hereby provides the following additional information:

    


    (a)           Excluding
the Notes (and any Conversion Shares into which such Notes may be converted)
subscribed for above, set forth below is the number of shares of preferred stock
of the Issuer (“Preferred
Stock”) or Common Stock and options, rights or warrants of the Issuer
(“Options” and together
with the Preferred Stock and Common Stock, “Owned Securities”) which the
Investor beneficially
owns or of which the Investor is the record owner on the date
hereof.  Please refer to the definition of beneficial ownership
on Exhibit F
attached hereto.  If none, please so state.

    


    Number of
shares of Preferred Stock and Common Stock: _______________________ (excluding
the Notes, and any Conversion Shares into which such Notes may be converted,
subscribed for above)

    


    Number of
Options: __________________ (excluding the Warrants issued in connection with
this Agreement)

    


    Please
indicate by an asterisk (*) above if the Investor disclaims “beneficial ownership”
of any of the above listed Owned Securities, and indicate in response to
question (b) below who has beneficial ownership.

    


    (b)           If
the Investor disclaims “beneficial ownership”
in question (a),  please furnish the following information with
respect to the person(s) other than the Investor who is the beneficial owner(s)
of the Owned Securities in question.  If not applicable, please check
box:    ̈

    


    
      	
              Name
      of Beneficial Owner:

            	 
      


    

    
      	
              Relationship
      to the Investor:

            	 
      


    

    
      	
              Number
      of Owned Securities Beneficially Owned:

            	 
      


    

    


    I       
     As to the Owned Securities indicated as being
“beneficially
owned” in answers to question (a) and (b) does any person other than the
person identified as the “beneficial owner”
have:

    


    (i)         
   the sole or shared power to vote or to direct the vote of any
such Owned Securities?

    


    Yes £  No
£

    


    or                       
    (ii)     
      the sole or shared power to dispose or to
direct the disposition of any such Owned Securities (referred to as “dispositive
power”)?

    


    Yes £  No
£


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    If the
answer is “Yes” to either of the forgoing questions, the Investor should set
forth below the name and address of each person who has either such power or
with whom the indicated “beneficial owner”
shares such power, together with such number of shares to which such rights
relates.

    


    


    
      	 
      
	 
      
	 
      


    

    


    IF
THE INVESTOR IS AN ENTITY OR A TRUST:

    


    The
Investor must list the name of each natural person associated with the Investor
entity or trust who has or shares voting or dispositive power with respect to
the shares indicated as being “beneficially owned”
in answers to questions (a) or (c).  For an investment or holding
company, the investment manager(s) would normally be the person(s) who hold(s)
or share(s) voting and dispositive power.  For a trust, the natural
person(s) holding or sharing voting or dispositive power would normally be the
trustee(s).  For other types of entities, the natural person(s)
holding or sharing voting or dispositive power would normally be the officer(s)
empowered by the board of directors to make such decisions, or if there is no
such officer, each of the directors.  Disclosure is required for each
natural person who in practice has voting or dispositive power, regardless of
that person’s formal title or position within the organization.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    NAME OF
INVESTOR:______________________

    


    


    
      	
              Name
      of Natural

              Person

            	
              Type
      of Power:

              Voting/Dispositive/

              Both

            	
              Address

            	
              Position
      or Title

            
	
               
      

               

            	 
      	 
      	 
      
	
               

               
      

            	 
      	 
      	 
      
	
               

               
      

            	 
      	 
      	 
      


    

    


    


    (d)           In
any pending legal proceeding, is the Investor or any of its affiliates a party, or does
the Investor or any such affiliate have an interest,
adverse to the Issuer or any affiliate of the
Issuer?

    


    Yes £  No
£

    


    If the
answer is “Yes,” please describe, and state the nature and amount of, such
interest.

    


    
      	 
      
	 
      
	 
      
	 
      


    

    


    (e)           Is
there any family relationship (including relationships by blood, marriage, and
adoption, except those more remote than first cousin) between the Investor or
any of its affiliates
and any director or officer of the Issuer, any affiliate of the Issuer or
any person who has been chosen to become a director or officer of the
Issuer?

    


    Yes £  No
£

    


    If the
answer is “Yes,” please describe the relationship.

    


    
      	 
      
	 
      
	 
      
	 
      


    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    (f)           Are
any of the Owned Securities listed in response to question (a) the subject of a
voting agreement, contract or other arrangement whereby others have voting
control over, or any other interest in, any of the Investor’s Owned
Securities?

    
      	 
      	
              Yes
      £  No
      £

            


    

    


    If the
answer is “Yes”, please give
details:____________________________________________.

    


    (g)           Please
describe each position, office or other material relationship which the Investor
has had with the Issuer or any of its affiliates, including any Subsidiary of
the Issuer, within the past three years.  Please include a description
of any loans or other indebtedness, and any contracts or other arrangements or
transactions involving a material amount, payable by the Investor to the Issuer
or any of its affiliates, including its Subsidiaries, or by the Issuer or any of
its affiliates, including its Subsidiaries, to the Investor.  “Affiliates” of the Issuer
include its directors and executive officers, and any other person controlling
or controlled by the Issuer.  If none, please so
state.

    


    Answer:

    


    


    (h)           Please
provide the name and address of other person(s), if any, to whom any proxy
statements, registration statements (including notice of effectiveness thereof),
prospectuses or similar documents and information should be delivered by the
Issuer on behalf of the Investor in the future, with respect to the Investor’s
shares:

    


    
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      


    

    


    


    


    (i)           Please
advise if a Financial Industry Regulatory Authority (FINRA) member has placed
with you the Notes or Conversion Shares being purchased
hereunder:  (Name of Member):
________________________________